Stone-Ordean-Wells Co. v. Mark
| Decision Date | 27 September 1915 |
| Docket Number | 150. |
| Citation | 227 F. 975 |
| Parties | STONE-ORDEAN-WELLS CO. v. MARK. |
| Court | U.S. Court of Appeals — Eighth Circuit |
Syllabus by the Court
Insolvency of the persons against whom the judgments, attachments, or other liens specified in section 67f (), are obtained at the respective times they are secured is indispensable to their avoidance under that section, and to the jurisdiction of the court of bankruptcy to order conveyance or make other orders to that effect thereunder.
The burden is on him who claims a lien is void under section 67f to plead and prove the insolvency of the person against whom it was obtained at the time it was secured.
An execution creditor, whose execution was levied by the sheriff on the right of the defendant to recover a debt of a bank to it eight days before the petition in bankruptcy was filed against such defendant, to whom the sheriff paid the moneys collected under that levy after the filing of the petition in the absence of any injunction order or process of the court of bankruptcy against him, or the sheriff, making either of them a party or otherwise, and in the absence of any demand of notice by any agent or officer of that court regarding the matter before the money was collected and paid over, has a substantial claim for the money he has thus received, is an adverse claimant thereof, and in the absence of any pleading or proof of the insolvency of the execution debtor at the time of the levy of the execution may not be compelled to pay the money over to the trustee of the bankrupt's estate in a summary proceeding in the court of bankruptcy, but has the right to an opportunity to defend his claim to the money in a plenary suit according to the course of the common law. Reference is made to the opinion in In re Rathman, 183 F. 913, 106 C.C.A. 253, for the rules and test for determining what claimants are adverse claimants, entitled to an opportunity to prosecute or defend their claims in plenary suits.
On April 24, 1913, Stone-Ordean-Wells Company, a corporation, obtained a judgment for $197.83 against Wadena Cracker Company, another corporation, in one of the district courts of the state of Minnesota; on April 26, 1913, an execution was issued thereon; and on May 15, 1913, the sheriff levied this execution on a debt owing by the First National Bank of Wadena to the Cracker Company on account of moneys that had theretofore been deposited with it by the Cracker Company. The statutes of Minnesota provide that such a levy may be made by leaving with the debtor to the judgment debtor 'a certified copy of the execution with a notice specifying the property levied on' (Gen. St. Minn. 1913, Sec. 7934), and that, when the officer with an execution against the defendant applies to any person mentioned in section 7934 for the purpose of levying upon a debt he owes to the defendant, that person shall furnish the officer with a certificate of the debt owing to the judgment debtor (section 7935). The bank disclosed to the sheriff its indebtedness to the Cracker Company in an amount in excess of the judgment debt and on June 15, 1913, he collected from it by virtue of his levy $211.93, retained $10.70 in payment of his fees and costs and paid over to the Stone Company $201.23. On May 23, 1913, a creditors' petition against the Cracker Company praying its adjudication a bankrupt was filed in the court below; on June 14, 1913, the Cracker Company was adjudged a bankrupt on default; on July 23, 1913, John H. Mark became trustee of its estate, and on the same day he presented to that court a petition for an order on the Stone Company to pay over to him as such trustee the $211.93 the sheriff had collected from the bank. The court issued an order on the Stone Company to show cause why the prayer of the trustee's petition should not be granted. The Stone Company objected to the granting thereof on the ground that the petition failed to present any case wherein the court had jurisdiction to determine in a summary proceeding any issue it tendered. The court below, however, after a hearing, granted the petition and ordered the Stone Company to pay to the trustee $211.93, interest thereon from June 16, 1913, and $15 costs on the hearing. The Stone Company has brought this petition to revise the final order below, on the ground that there was no allegation in the petition for the order, and no proof of the insolvency of the Cracker Company at the time of the levy, and that in the absence of such allegation the bankruptcy court was without jurisdiction to avoid, in a summary proceeding, its levy, and compel its payment of the money it collected by means of the process of the state court to the trustee.
Courtney & Courtney, of Duluth, Minn., for petitioner.
Hugh J. McClearn, of Duluth, Minn., for respondent.
Before SANBORN and CARLAND, Circuit Judges, and LEWIS, District Judge.
SANBORN Circuit Judge (after stating the facts as above).
Section 67f of the bankruptcy act provides:
' Act July 1, 1898, c. 541, Sec. 67f, as amended by Act Feb. 5, 1903, c. 487, Sec. 16, and Act June 25, 1910, c. 412, Sec. 12 (U.S. Comp. Stat. 1913, Sec. 9651, pages 4399, 4401).
Counsel for the trustee cite this section and decisions under which orders made thereunder in summary proceedings avoiding liens obtained against insolvents in legal proceedings within four months of the filing of petitions in bankruptcy against them have been sustained. But the insolvency of the persons against whom the liens mentioned in this section are obtained is indispensable to their avoidance by summary proceedings thereunder. It is liens obtained through legal proceedings against an insolvent, and those only, that are avoided in case he is adjudged a bankrupt, and it is conveyances necessary to effect an avoidance of such liens, and those only, that the court of bankruptcy is empowered by this section to order. If a creditor by legal proceedings obtains a lien by attachment or by the levy of an execution three months before the filing of a petition in bankruptcy against his debtor, who is then solvent, and who does not become insolvent until the day the petition in bankruptcy is filed against him, that creditor does not obtain his lien 'through legal proceedings against a person who is insolvent,' but against a person who is solvent 'within four months prior to the filing of the petition in bankruptcy against him,' and section 67f grants the court of bankruptcy no power to avoid that lien, or to order conveyances to effect that result in summary proceedings. The evident purpose of the Congress in limiting the power of the court summarily to avoid liens of the character mentioned in the section to those against insolvents, and in withholding the power to avoid those against solvents, was to give the power to avoid such as creditors would be likely to know would probably give them a preference over other creditors, and to withhold the power to avoid others.
The natural and pertinent time of that insolvency which conditions the power of the court of bankruptcy to avoid in summary proceedings one of the liens specified in section 67f is the time when the lien is obtained. If the person is then insolvent, the lien is obtained against 'a person who is insolvent'; if he is solvent, then the lien is obtained against a person who is solvent. And the terms of the statute, their natural and rational interpretation, the meaning which first occurs to the mind on reading them, and that which after meditation securely abides, compel the conclusion that it was the intention of Congress and the legal effect of section 67f to grant to the courts of bankruptcy the power to effect an avoidance in summary proceedings of liens of the character there specified, obtained against persons who were insolvent at the respective times the liens were obtained, and those only, and that the insolvency of the person at the time the lien is acquired is an indispensable condition of the existence and of the exercise of the power. Keystone Brewing Co. v. Schermer, 241 Pa. 361, 88 A. 657, 31 Am.Bank.Rep. 279, 281, 282; Simpson v. Van Etten (C.C.) 6 Am.Bank.Rep. 204, 205, 206, 108 F. 199, 201; 1 Loveland on Bankruptcy, 909, 910, Sec. 437; Severin v. Robinson, 27 Ind.App. 55, 60 N.E. 966; Collier on Bankruptcy (10th Ed.) p. 963, par. 'e.'
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